This blog comes from Colorado firm Higgins, Hopkins, McLain & Roswell. Our goal is to use this blog as a means by which to share news and updates regarding construction litigation in Colorado. While we specialize in litigation of complex construction claims, including construction defect matters, we also use this blog as a platform to share thoughts and ideas regarding risk management strategies that can be implemented to minimize the risk of construction related claims.

Wednesday, December 4, 2013

The
term “ongoing operations” has appeared in construction insurance policies for
many years. Here in Colorado, that
phrase has had a particular meaning when applied to an insurer’s coverage of
liability arising out of an insured’s work, i.e.
liability arising during an insured’s work on a specific project. The case of Jaynes Corporation v. American
Safety Indemnity Company illustrates a new trend in other jurisdictions
where courts are loosening the coverage application of an “ongoing operations”
clause.

In
December 2012, in U.S. District Court in Nevada, Judge Miranda M. Du ruled on
cross motions for summary judgment filed by Jaynes Corporation (“Jaynes”) and
American Safety Indemnity Company (“ASIC”).
ASIC’s argument that the “ongoing operations” provision precludes
coverage for Jaynes is the pertinent issue to this article.

The
background facts of the case are pretty standard for construction litigation. A
subcontractor entered into written agreement with Jaynes, the general
contractor, for site concrete work at a residential housing project. In the contract, the subcontractor agreed to
name Jaynes as an additional insured on policies issued by ASIC. The damages in the original construction
litigation, between the homeowners association and the developer, were alleged
to have occurred during the policy periods.
The subcontractor performed its work on the project in 2003 and 2004.

ASIC
asserted that the “ongoing operations” provision in the policies, issued to the
subcontractor, precludes coverage for the construction defect claims in the
underlying lawsuit because those claims involved completed operations. ASIC argued that the claims involved
completed work and not works in progress.
Jaynes countered-argued that the “ongoing operations” provision does not
restrict coverage to damage that occurred during the subcontractor’s ongoing
operations, but it also covers claims for damages that occurred after completed
operations but was caused by ongoing operations.

Judge
Du discarded ASIC’s arguments and agreed with Jaynes, determining that the
“ongoing operations” clause applies to damage on work performed by the
subcontractor caused by its ongoing operations.
Judge Du cited two cases, from Arizona and California, which analyzed
similar “ongoing operations” clauses.
Those two cases, Tri-Star Theme Builders, Inc. v. OneBeacon
Insurance Co., 426 Fed.Appx. 506 (9th Cir. 2011) and McMillin
Construction Services, L.P. v. Arch Specialty Insurance Co., 2012 WL 243321
(S.D. Cal. Jan. 25, 2012), determined that the policies at issue covered
liability performed by a subcontract caused by that subcontractor’s ongoing
operations. In those cases, the specific
language, “arising out of,” in the “ongoing operations” clause was vital to the
courts’ rulings.

Judge
Du noted that Nevada courts, like those of Arizona for Tri-Star and
California for McMillan, review insurance policy terms from the
perspective of a layman not trained in law or insurance, and the contract
language viewed in its plain, ordinary, popular meaning. Judge Du found compelling the Tri-Star’s
Court’s discussion of the phrase “arising out of,” “this language does not
state that injury must occur, or liability must arise, during the name insured’s ongoing operations, but rather requires
only that the liability arise “out of” the ongoing operations.” Tri-Star, 426 Fed.Appx. at 510 (9th
Cir. 2011).

Judge
Du also addressed ASIC’s arguments and supportive cases contrary to Tri-Star
and McMillan. One of the cases
ASIC cited was a Colorado case, Weitz Co., LLC v. Mid-Century Ins. Co.,
181 P.3d 309 (Colo. App. 2007). Judge Du
stated that those contrary cases relied not on the plain language of the
provisions at issue, i.e. “ongoing
operations,” but rather, the drafting history of the clause by the insurance
company. Judge Du went further stating
that such history lessons are not persuasive in the face of the plain language
of the “ongoing operations” clause.
Judge Du then let the Tri-Star case speak for her one more time:

Such evidence
might be persuasive if the controversy . . . were between two insurers, or if
it suggested that the language reflected the mutual intent of the parties. This
evidence is wholly lacking here. Indeed, . . . the only court to construe the
additional insured endorsement, without reference to the industry’s drafting
history, held that it provided coverage for damages occurring after the
completion of operations.

Tri-Star, 426 Fed.Appx.
at 512 (9th Cir. 2011).

The
Weitz case has a similar factual background to the Jaynes case: A
general contractor, sued by a homeowner, brought an action against an insurer
that issued a policy to a subcontractor to which the general contractor was an
additional insured. The district court
granted the insurer’s summary judgment motion asserting that coverage was
limited to “ongoing operations” and there was no coverage for claims arising
out of subcontractor’s completed work or operations. Weitz, the general contractor, appealed the
order and the Colorado Court of Appeals affirmed the district court’s ruling.

In
coming to its decision, the Colorado Court of Appeals found persuasive an
analysis of the ISO’s history of drafting the additional insured endorsement (CG
20 10 1993) in another case. The Weitz
court found their construction of the phrase and the coverage it affords to be
in line with the views of commentators addressing the history of the ongoing
operations clause. Ultimately, the Weitz
court found that no ambiguity existed and the “ongoing operations” clause would
not cover any work that had been previously completed.

The
analysis by the Weitz court is exactly what Judge Du found unpersuasive
as it failed to dissect the plain language of the clause, instead relying on
the history of the clause within the insurance industry. While the Jaynes case is not authority
in Colorado, the fact is a trend is emerging in courts of neighboring
jurisdictions and soon Colorado courts may be faced with a similar
analysis. We have to wait and see if Weitz
will be challenged soon. Using these
mounting cases as support for an extension of coverage under the “ongoing
operations” clause seems imminent in Colorado courts.

The attorney who drafted this
entry is no longer with the firm. For additional information regarding Colorado
construction litigation, please contact David M. McLain at (303) 987-9813 or by
e-mail at mclain@hhmrlaw.com

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The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.

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Higgins, Hopkins, McLain & Roswell exists to embody and exemplify the principles of service and stewardship. In everything we do, we focus on serving our clients selflessly and to the best of our ability. In doing so, we always have in the forefront of our minds our obligation to act as the stewards of our clients’ trust, confidences, and resources. We are highly regarded for our expertise in construction law and the litigation of construction claims. We represent a wide variety of clients, from individuals, to small businesses, to Fortune 500 companies.